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Thursday, November 15, 2012

Economic Collapse: Japan's Economy, Exports Rapidly Shrinking

While investors are focused on the out of control eurozone crisis, Japan’s economy is
showing signs of contraction as its GDP fell last quarter by 3.5%, the
most since the earthquake and tsunami in early 2011, while exports and
consumer spending slumped.

­The results fell below analysts’ expectations, which predicted
Japan’s GDP to decline 3.4 % in the Q3, according to a Bloomberg News
survey last week. It was expected to be the third technical recession
since 2008.

“The GDP figures were grim," Japanese PM
Yoshihiko Noda told parliament after the data was released. Noda is
preparing for an election and has pledged to speed up government efforts
to boost the economy. Weaker results could undermine his efforts
including a crucial plan to raise the national sales tax from 2014 to
boost revenues. The proposed measure would be the first tax rise in more
than a decade and is considered politically controversial.

“Today’s bad economic numbers deliver unpleasant news for Noda,” Hiroshi Shiraishi, senior economist at BNP Paribas SA in Tokyo, told Bloomberg. “It
will take a while for Japan to get back to a sound recovery,
considering a modest pick-up in the global economy at best and the
country’s damaged relationship with China.”

Japan
suffered the worst September trade result in more than 30 years amid the
territorial row with China. The long running dispute re-emerged after
the Noda administration’s bought a group of islands that China also
claims. Exports to China – Japan’s biggest trading partner – sank 14%
from a year earlier to 953.4 billion yen ($12.2 billion). Meanwhile the
spreading crisis in Europe also hurt Japanese exports.

Weaker
exports have hit Japanese corporate majors such as Sharp, Panasonic, and
Nissan, which heavily rely on foreign trade. Panasonic forecast a
$9.5bln loss this year, 30 times bigger than analyst estimates, while
Hitachi Construction Machinery Co. and Nissan Motor Co. cut their full-
year profit forecasts and cosmetics major Shiseido Co. plans spending
cuts.

At the end of October the Bank of Japan expanded its
asset-purchase program by 11 trillion yen ($137bln) to 91 trillion yen
for the second time in two months. With the new weak figures the BoJ is
likely to continue its supporting policy under political pressure,
experts believe.

High debt burden is another problem of the
Japanese economy. Earlier this year the US-based Fitch rating agency cut
Japan's Long-Term Foreign and Local Currency Issuer Default Ratings
(IDRs) to 'A+' from 'AA' and 'AA-' respectively. The move reflects
“growing risks for Japan's sovereign credit profile as a result of high
and rising public debt ratios,” according to Andrew Colquhoun, Head of
Asia-Pacific Sovereigns at Fitch.

Japan's general government
debt is expected to hit 239% of GDP by the end of 2012, compared to the
average 39% for OECD economies and 8% for 'A' –rated economies. Even
Greece has a debt of 178% of GDP. This debt ratio has risen by 61% since
the global financial crisis broke out.

However, Fitch
considers that broader private sector savings, official foreign reserves
worth $1.3 trillion and the fact that the Japanese yen is a global
reserve currency will help the country’s economy to stay firm.